Enforcement of Judgments: Garnishee Proceedings and Charging Orders

Enforcement of Judgments: Garnishee Proceedings and Charging Orders

Enforcement of Judgments: Garnishee Proceedings and Charging Orders 900 600 Jonathan Gray

Jonathan Gray discusses enforcement of judgments as a crucial aspect of the legal system in Hong Kong. When a party is successful in obtaining a judgment, it is important to ensure that the judgment is enforced and the debtor complies with the court’s order. Two common methods of enforcement in Hong Kong are garnishee proceedings and charging orders.

Garnishee proceedings refer to a legal mechanism by which a judgment creditor can recover the debt owed to them by intercepting funds owed to the debtor by a third party. This process involves obtaining a court order to freeze the debtor’s bank account or other assets held by a third party. Once the order is granted, the funds held by the third party are used to satisfy the debt owed to the judgment creditor.

Charging orders, on the other hand, are used to secure the debt owed by the judgment debtor against their assets. A charging order is a court order that places a charge on the debtor’s property or assets. This prevents the debtor from disposing of or transferring the assets without settling the debt. The charging order can be registered against various types of assets, including real property, shares, and securities. Once the charging order is registered, the judgment creditor can proceed to enforce the charge by way of a sale of the charged assets.

Jonathan highlights the procedure and the process of funds recovery.

Make sure to also check out the next episode “Enforcement of Judgments: Oral Examination and Prohibition Orders“.

SHOW NOTES:
00:22 Enforcing a judgement against a debtor
02:01 The application process
03:13 Timing and eventual pitfalls
04:00 Charging Orders
05:41 Funds recovery


TRANSCRIPT
Enforcement of Judgments: Garnishee Proceedings and Charging Orders

In Hong Kong, justice is a cornerstone of society. But what happens after a judgment is passed? How is it enforced? Let’s take a closer look.

So, you have just succeeded in getting a judgment – what options are available for enforcing it against the judgment debtor?  

There are several options available, depending on the precise circumstances of each case and the known assets against which the judgment can be enforced.

A common way of getting a judgment debtor to pay the judgment debt is by issuing or threatening to issue bankruptcy or winding up proceedings.  Strictly, these are not actually methods of enforcement – but they are similar to execution in that the purpose is to enforce payment of all proved debts of judgment debtor.  However, an unsecured judgment creditor may be a long way down in the queue when it comes to payment in a bankruptcy or winding-up, hence may prefer to look at other methods, if available.

Where there are known assets against which the judgment can be enforced, the main methods include garnishee proceedings (which typically involve enforcing against the judgment creditors bank accounts) and charging orders against land or securities.

If the judgment creditor knows of bank accounts belonging to the judgment debtor, one of the most common methods of enforcement involves what are called garnishee proceedings.  This essentially involves getting a Court order which compels the bank to pay whatever sum is in the debtor’s bank account to the judgment creditor up to the amount of the judgment debt and any interest which has accrued plus a fairly small of costs incurred in obtaining the garnishee order.

Garnishee orders are not limited to bank accounts and can be obtained against any debt owed by a third party to the judgment debtor – although in practice, garnishee orders are most often obtained against bank accounts.

How easy is it to get?   

It is fairly straightforward to get.  The important requirement is that the judgment creditor should have details of the judgment debtor’s bank accounts.

The application is made in 2 stages:

  • the 1st stage is made on paper without notifying either the judgment debtor or the bank (to avoid tipping off the judgment debtor and giving them an opportunity to clean out their account).
  • The Court will make what is called an Order to Show Cause – this is then served on the bank which will then temporarily freeze the account.
  • The Order is then served on the judgement debtor at least 7 days later (to avoid tipping off the judgement debtor before the bank has had a chance to freeze the funds.
  • A hearing will then take place with notice to both the judgement debtor and the bank to make the Order to Show Cause final.

Roughly, how long does it take?

Typically, it takes around 3-6 weeks for the 1st stage i.e. to get the preliminary Order to Show Cause and then around 6 weeks for the 2nd stage i.e. from the date of the preliminary Order to Show Cause to getting the final order.

How easy is it for the judgment to challenge or oppose the application?

Not very easy. Often, the judgment debtor will not attend. Even if they do, there is very little that they can say.  They are not permitted to re-litigate the case.  The Court is simply concerned with being satisfied that the account belongs to the judgment debtor and that there is no reason why the funds cannot be garnished by the judgment creditor.

Typically, the bank takes a neutral position and usually will not attend the hearing – but will write a letter to the Court simply saying that they take a neutral position and agreeing to comply with whatever order the Court makes.

Can you apply to garnish more than one account?

Yes – you can garnish multiple accounts of the judgment debtor.

Apart from garnishee orders what are the other main methods of enforcement against assets known to belong to judgment debtor? 

Where a judgment creditor knows that the judgment debtor has various assets such as land or securities, he can apply for what is called a charging order over those assets.

While charging orders are most often seen in relation to land or securities, they can include, for example, an interest held by the debtor in any trust.

What is the procedure?

The procedure is similar to applications for garnishee orders.  The judgment creditor applies ex parte (without notice to the judgment debtor) for a preliminary order called the Order to Show Cause.  A sealed copy of this is then registered immediately with the Land Registry if the charging order is land – to put any third party on notice of it.

If the Order to Show Cause relates to securities, copies of the order must also be served on the company to whose stock the order relates.

Copies of the Order to Show Cause and the affidavit in support must also be served on the judgment debtor.

There is then a second hearing to determine if the preliminary order should be made final (or absolute).  Once made, a sealed copy of the final order should again be registered immediately with the Land Registry (if the property concerned is land).

What if the judgment debtor tries to dispose of his shares before the order is made final?

Where there is a risk that the judgment debtor will try to dispose of his property before the Order to Show Cause gets made absolute, when applying for the Order to Show Cause he can also apply for an injunction to prevent such disposal.  Of course, he must provide cogent evidence to support his contention that there is a real risk of the judgment debtor dissipating his assets.

After the charging order is made final, how does the judgment creditor recover his money?

The charging order when made final does not transfer any legal or beneficial ownership in the property to the judgment creditor.

However, after obtaining the final order, if the judgment debtor still fails to pay the judgment debt, the judgment creditor can apply for an order for the sale of the property, assets or securities so that the judgment debt can be paid using the sale proceeds.

This requires separate proceedings, which makes charging orders more expensive and procedurally more cumbersome than, say, garnishee proceedings.

There can also be issues with regard to the sale of shares – e.g. there may be a limited market for shares in a private company.  Also, in many cases the Articles of a private company may give the directors a power to refuse registration of share transfers which may discourage potential purchasers or negatively affect the sale price.

 

This video is for informational purposes only. Its contents do not constitute legal or professional advice.

Jonathan Gray

Jonathan specialises in dispute resolution, acting for clients in a wide range of general commercial disputes covering both litigation and arbitration. He also advises on both contentious and non-contentious employment law matters.

All articles by : Jonathan Gray
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